The Impact Study Of Internal Control Quality On Bank Debt Contract

The United States government passed the Sarbanes Act in 2002 after a series of financial scandals such as Enron,WorldCom Xerox(SOX).It required the company to pay attention to the internal control of financial reports.The internal control had entered a new stage since then.In order to strengthen the enterprise internal control standard,China issued the basic norms of internal control in 2008.Five ministries jointly issued the internal control supporting guidelines in 2010,requiring the company which were listed on Shanghai and Shenzhen Stock Exchange ace under coercion from 2012.It can be seen that the role of internal control in enterprises is increasing.Internal control is an important part of corporate governance.The implementation of internal control is conducive to the completion of the company's objectives.If the quality of internal control is poor or defective,it will decrease the level of corporate governance.It will convey to the claims of investors to banks and other financial conditions of the poor,false information of unknown adverse signal.Thereby the capital market transparency and efficiency of resource allocation will reduce.As a rational investor,the banks and other creditors will take debt financing constraints to reduce their own risk.Based on the characteristics of debt contract.The impact of the internal control on banks debt contract was studied in this paper.When banks and other creditors faced the enterprise with different internal control quality,the contents of the debt contract,such as loan amount,loan interest rate,loan duration would be different.The banks would also make different debt financing decisions when faced the enterprises with different property rights and competition in different sectors.This paper selected Chinese A shares data as object and company from 2013 to 2015,which have been listed on Shanghai and Shenzhen Stock Exchange.The internal control index was from Shenzhen Dibo.The research methods of normative and empirical were used in this paper.The quality of internal control the impact of internal control on new borrowing scale,the cost of debt capital and debt maturity structure were studied.We went a step further to study the nature of property rights and the degree of competition in the industry study.These conclusions were found:(1)Bank creditors would make reasonable investment according to the quality of internal control in debt financing decisions.The high level of internal control can convey positive signals to external investors,such as banks.So the firms with higher internal control could get more new loans,lower debt capital costs and more long-term debt.(2)The enterprises were divided into two groups according to the nature of property rights.Then the study found that the impact of internal control quality on the debt contract was more obvious when the non-state-owned enterprises compared with the state-owned enterprises.The nature of the state-owned enterprises would weaken the impact of internal control quality on the debt contract.The state-owned enterprises were easier to get more new loans,lower cost of debt capital and longer debt maturity.(3)In addition,the influence of internal control quality on the bank debt contract is more significant in the highly competitive industries.This paper replaced the explanatory variables for the sake of the stability of the results.The above empirical analysis conclusions were still supported by sensitivity test.Finally,this paper put forward some policy recommendations from three aspects: the enterprise,the bank and the external regulators above-mentioned conclusions.